Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Axos Financial Inc (AX, Financial) reported double-digit year-over-year growth in earnings per share and book value per share for the 10th consecutive quarter.
- The company achieved a 19.1% return on average common equity for the three months ended September 30, 2024.
- Net interest margin increased to 5.17% for the quarter, benefiting from the payoff of three loans purchased from the FDIC.
- Axos Financial Inc (AX) increased deposits by $614 million in the first quarter of fiscal year 2025, with demand, money market, and savings accounts representing 96% of total deposits.
- The company continues to see strong demand in its fund finance, ABL, and select C&I lending businesses, with several new lending and deposit teams contributing to growth.
Negative Points
- There was an uptick in nonperforming assets, particularly in the single-family jumbo mortgage and commercial real estate loan portfolios.
- The company faced elevated levels of prepayments in multifamily, single-family jumbo mortgage, and commercial real estate lending groups, impacting loan growth.
- Axos Financial Inc (AX) experienced increased competition and pricing pressure in certain lending verticals, which may require concessions on pricing.
- Noninterest expenses rose to approximately $147 million for the three months ended September 30, 2024, driven by higher salaries and benefits expenses.
- The company allocated a specific loan provision of approximately $10 million for a potential loss related to a restructuring transaction in a shared national credit loan.
Q & A Highlights
Q: Can you discuss the competitive dynamics you're seeing for new loan deals, particularly in the C&I verticals?
A: Gregory Garrabrants, President and CEO: We've observed a trend of banks tightening spreads, which has led to some pricing pressure in certain verticals. Despite this, demand remains strong, and we've added teams across various geographies and national verticals. We need to be thoughtful about pricing concessions to maintain loan growth, but competition is definitely increasing.
Q: How do you see fee income evolving, especially in areas like mortgage banking and prepayment penalty fees?
A: Gregory Garrabrants, President and CEO: Prepayment penalty fees are primarily from multifamily hybrid loans, which have not been a focus due to the inverted yield curve. As this business picks up, we expect an increase in these fees. Mortgage banking volume is sensitive to the 10-year rate, and while it has picked up, long rates have also increased. We see potential growth in the securities business, driven by volume.
Q: With the Fed cutting rates, how do you see broker-dealer fees being affected?
A: Gregory Garrabrants, President and CEO: The net new assets and rate cuts might offset each other. We've rolled out a new fee schedule to incentivize cost-saving behaviors. If rates decline significantly, it could impact fee income, but we're seeing good pipeline growth, which could mitigate this.
Q: Can you provide more color on the increase in non-performing loans (NPLs) and credit migration?
A: Gregory Garrabrants, President and CEO: We feel positive about clearing some of these issues. Many are idiosyncratic and are being resolved. Our commercial real estate portfolio looks strong, with no significant loss concerns. The C&I side may have more average loan loss rates, but overall, we are seeing good resolution on non-performing assets.
Q: How are you managing deposit costs and what opportunities do you see for deposit growth?
A: Gregory Garrabrants, President and CEO: We've been proactive in managing deposit costs, even ahead of Fed rate cuts, and have seen good growth in business deposits. We're focused on expanding in C&I verticals, middle market, and technology sectors, which are bringing in deposits. The securities business also presents a significant opportunity for low-cost deposit growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
